Ocado shares tumble after London flotation

Shares in Ocado, the online grocery retailer, slumped by 10pc on their first
morning of conditional trading on the stock market.

Ocado slashes flotation price at eleventh hourPhoto: Rex Features

By James Hall, Retail Editor

11:57AM BST 21 Jul 2010

The fall came on top of an eleventh hour cut in the IPO price on Tuesday afternoon, leaving initial valuations of the chain looking massively over-ambitious. The share price fall on the first day of trading means that Ocado’s stock is trading some 40pc below the top of its indicative price range just one day ago.

Shares in the loss-making retailer were trading at 161p by mid-morning on Wednesday, down from a listing price of 180p.

On Tuesday afternoon Ocado, which sell Waitrose groceries over the internet, was forced to cut its IPO price by 20pc: to 180-200p from a previous range of 200-275p.

Tim Steiner, Ocado’s chief executive, said that the retailer is under-valued. “We will see where it is at the end of the day and more important, we will see where it is trading in 24 months ... We are all entitled to our opinions and my opinion is that we should be valued at more than 163p,” he said earlier, when shares were trading at that level.

Mr Steiner said that he would not even sell the retailer at 275p a share, and said that he is proud to have got the IPO away.

“My focus is not on the ticker. My focus is on the £200m that we have raised,” he said. Mr Steiner did not sell any of his stake in Ocado as part of the IPO.

The IPO valued Ocado at £937m, including the £200m of new equity raised. This is markedly below the £1.2bn that the company would have been worth at the mid-point of its 200-275p valuation.

Mr Steiner said that some potential investors had been put off by a “rear view mirror” view of the company’s historical performance, rather that its future prospects. Ocado made a pre-tax loss of £25.5m last year on sales of over £427m.

“I think that people are missing things about Ocado as they are looking into the rear view mirror and looking at our historical performance - past cash flows, not future cash flows. I believe that in ten years we will be living in the future not the past,” he said.

Mr Steiner said the way that people are shopping is changing. “The world’s biggest seller of music is Apple. They weren’t even selling music when [now defunct] Tower Records was selling music on the high street,” he said.

Due to this, Ocado’s management spent much of its pre-IPO roadshow talking to institutions who had invested in companies such as Amazon, Yoox, ASOS, Apple and Google.

Around 40pc of Ocado’s investors are based in the UK, while 30pc are in Europe and the US respectively.

The John Lewis pension fund cut its shareholding in Ocado from 26.5pc to 10.4pc. UBS, the investment bank, cut its stake from an estimated 9pc to 3.8pc.